What is a direct labor budget?

A direct labor budget is a specified number of production hours a company requires to achieve a desired level of production in a given period of time. A company may allocate 5,000 hours for production in a manufacturing division for a quarter, for instance.

The number of hours stated in a direct labor budget helps company leaders ensure the supply of workers is accurate to deliver the hours budgeted and to achieve production goals. Direct labor budgets are also used to prepare for overtime requirements and layoffs. Companies typically prepare a direct labor budget on a monthly or quarterly basis. The projected total cost of direct labor is the average hourly wage times the production hours budgeted.